Question 1

An increase in the frequency of compounding will increase the future value of an investment if all other factors are held constant.

Accepted Answer

A) True 
 B)False

Question 2

The lease on a new office requires an immediate payment of $24,000 plus $24,000 per year at the end of each of the next 10 years. At a discount rate of 14 percent, what is the present value of this stream of lease payments?

Accepted Answer

A) $130,872 
B) $149,194 
C) $142,710 
D) $264,000 
A) $130,872 
B) $149,194 
C) $142,710 
D) $264,000

Question 3

More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.

Accepted Answer

A) higher, higher 
B) lower, higher 
C) higher, lower 
D) lower, lower 
A) higher, higher 
B) lower, higher 
C) higher, lower 
D) lower, lower

Question 4

Which of the following phrases would not be utilized if the payments were an annuity due?

Accepted Answer

A) End-of-period payments 
B) Starting immediately 
C) Starting now 
D) Starting today 
A) End-of-period payments 
B) Starting immediately 
C) Starting now 
D) Starting today

Question 5

You know you will need $25,000 at the end of 5 years. How much would you have to deposit annually, starting at the end of the first year, into an account earning 10% to accumulate the needed amount?

Accepted Answer

A) $3,980 
B) $4,095 
C) $4,435 
D) $4,973 
E) $5,886 
A) $3,980 
B) $4,095 
C) $4,435 
D) $4,973 
E) $5,886

Question 6

Mindy is saving for her wedding in 18 months which is expected to cost $15,000.  How much will she need to save monthly at 6% compounded monthly?

Accepted Answer

A) ​$485 
B) ​$873 
C) ​$798 
D) ​$1,385 
A) ​$485 
B) ​$873 
C) ​$798 
D) ​$1,385

Question 7

First Bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?

Accepted Answer

A) 10.38% 
B) 10.42% 
C) 10.45% 
D) 10.47% 
A) 10.38% 
B) 10.42% 
C) 10.45% 
D) 10.47%

Question 8

Jim Luster wants to have saved enough money by the time he is 65 to invest it and earn a $60,000 annual income for the rest of his life. He wants to be able to leave that same amount to his heirs, no matter how long he lives. If he can earn 8% on invested money, how much does he need to have accumulated by the time he is 65?

Accepted Answer

A) $480,000 
B) $600,000 
C) $750,000 
D) $900,000 
E) Cannot be determined based on the information given. 
A) $480,000 
B) $600,000 
C) $750,000 
D) $900,000 
E) Cannot be determined based on the information given.

Question 9

If the discount rate is 12%, what is the present value of the following cash flows:

Accepted Answer

A) $144,618 
B) $127,923 
C) $127,197 
D) $90, 537 
A) $144,618 
B) $127,923 
C) $127,197 
D) $90, 537

Question 10

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

Accepted Answer

A) $1,072,731 
B) $2,454,525 
C) $2,185,219 
D) $1,165,250 
A) $1,072,731 
B) $2,454,525 
C) $2,185,219 
D) $1,165,250

Question 11

You have borrowed $180,000 to buy a new home. You plan to make monthly payments over a 25-year period. The bank has offered you a 10% interest rate compounded monthly. Calculate the total amount of interest you will pay the bank over the life of the loan.

Accepted Answer

A) $301,499 
B) $307,541 
C) $310,545 
D) $319,766 
A) $301,499 
B) $307,541 
C) $310,545 
D) $319,766

Question 12

An annuity is a finite stream of equal payments occurring at regular or irregular time intervals

Accepted Answer

A) True 
 B)False

Question 13

Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of the accident. What is the present value (at the time of the accident)of the payment? Assume interest rates are 9%.

Accepted Answer

A) $153,900 
B) $68,100 
C) $65,000 
D) $70,800 
A) $153,900 
B) $68,100 
C) $65,000 
D) $70,800

Question 14

The lower the interest rate, the less money you have to put in the bank today have a given amount at some point in the future.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

Accepted Answer

A) True 
 B)False

Question 16

The process of finding present values is frequently called:

Accepted Answer

A) annualizing. 
B) compounding. 
C) discounting. 
D) leasing. 
A) annualizing. 
B) compounding. 
C) discounting. 
D) leasing.

Question 17

The effective annual rate will increase as the number of compounding periods per year increases.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following cash flows has the highest present value (PV)at a 15 percent discount rate?

Accepted Answer

A) $1,150 received one year from today 
B) $2,000 received 5 years from today 
C) $200 received every year (at the end of the year)for 10 years 
D) $300 received every year (at the end of the year)for 5 years 
A) $1,150 received one year from today 
B) $2,000 received 5 years from today 
C) $200 received every year (at the end of the year)for 10 years 
D) $300 received every year (at the end of the year)for 5 years

Question 19

A sum of money promised you at a time in the future is worth only as much as you would have to put in a bank today to have that sum available at that point in time.

Accepted Answer

A) True 
 B)False

Question 20

Compound interest occurs when interest is earned on interest.

Accepted Answer

A) True 
 B)False

An increase in the frequency of compounding will increase the future value of an investment if all other factors are held constant.

The lease on a new office requires an immediate payment of $24,000 plus $24,000 per year at the end of each of the next 10 years. At a discount rate of 14 percent, what is the present value of this stream of lease payments?

More frequent compounding results in future values and present values than less frequent compounding at the same nominal interest rate.

Which of the following phrases would not be utilized if the payments were an annuity due?

You know you will need $25,000 at the end of 5 years. How much would you have to deposit annually, starting at the end of the first year, into an account earning 10% to accumulate the needed amount?

Mindy is saving for her wedding in 18 months which is expected to cost $15,000. How much will she need to save monthly at 6% compounded monthly?

First Bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?

If the discount rate is 12%, what is the present value of the following cash flows:

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

You have borrowed $180,000 to buy a new home. You plan to make monthly payments over a 25-year period. The bank has offered you a 10% interest rate compounded monthly. Calculate the total amount of interest you will pay the bank over the life of the loan.

An annuity is a finite stream of equal payments occurring at regular or irregular time intervals

Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of the accident. What is the present value (at the time of the accident)of the payment? Assume interest rates are 9%.

The lower the interest rate, the less money you have to put in the bank today have a given amount at some point in the future.

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

The process of finding present values is frequently called:

The effective annual rate will increase as the number of compounding periods per year increases.

Which of the following cash flows has the highest present value (PV)at a 15 percent discount rate?

A sum of money promised you at a time in the future is worth only as much as you would have to put in a bank today to have that sum available at that point in time.

Compound interest occurs when interest is earned on interest.

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Exam 6: Time Value of Money

An increase in the frequency of compounding will increase the future value of an investment if all other factors are held constant.

The lease on a new office requires an immediate payment of $24,000 plus $24,000 per year at the end of each of the next 10 years. At a discount rate of 14 percent, what is the present value of this stream of lease payments?

More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.

Which of the following phrases would not be utilized if the payments were an annuity due?

You know you will need $25,000 at the end of 5 years. How much would you have to deposit annually, starting at the end of the first year, into an account earning 10% to accumulate the needed amount?

Mindy is saving for her wedding in 18 months which is expected to cost $15,000. How much will she need to save monthly at 6% compounded monthly?

First Bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?

If the discount rate is 12%, what is the present value of the following cash flows:

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

You have borrowed $180,000 to buy a new home. You plan to make monthly payments over a 25-year period. The bank has offered you a 10% interest rate compounded monthly. Calculate the total amount of interest you will pay the bank over the life of the loan.

An annuity is a finite stream of equal payments occurring at regular or irregular time intervals

Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of the accident. What is the present value (at the time of the accident)of the payment? Assume interest rates are 9%.

The lower the interest rate, the less money you have to put in the bank today have a given amount at some point in the future.

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

The process of finding present values is frequently called:

The effective annual rate will increase as the number of compounding periods per year increases.

Which of the following cash flows has the highest present value (PV)at a 15 percent discount rate?

A sum of money promised you at a time in the future is worth only as much as you would have to put in a bank today to have that sum available at that point in time.

Compound interest occurs when interest is earned on interest.

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

More frequent compounding results in future values and present values than less frequent compounding at the same nominal interest rate.